Completion of this chapter will enable you to:

 ! Outline the product life cycle (PLC) model.

 ! Explain the BCG matrix and its strategic implications.

 ! Explain a simple business life cycle (BLC) model.

 ! Explain the inverse correlation between business risk and financial risk.

 ! Consider business risk and financial risk throughout the life cycle of a business.

 ! Recognise the changing levels of earnings per share (eps) and cash flow during the different
stages of the business life cycle.

 ! Identify the various sources of business finance throughout the business life cycle.

 ! Consider how dividend levels, the P/E ratio, and the share price may change during the
different stages of the business life cycle.

1. Explain what is meant by the product life cycle (PLC) and how this may be applied to
consider the life cycle of a business.

2. Describe the BCG matrix and its various components.

3. Explain the inverse correlation between business risk and financial risk.

4. How may a company's net cash fl ow vary during each stage of the BLC?

5. Why may equity be preferable to debt fi nancing during a company's start-up phase?

6. In what ways do equity shareholders receive returns from their investment in a company
and how does this differ from returns received by debt holders?

 Outline the disadvantages associated with use of life cycle models.

 Compare the Boston Consulting Group (BCG) matrix approach with that of the life cycle
model.

 Why should a company not expect the level of business risk it faces to remain constant
during its entire life cycle?

 For each of the major stages in the life cycle of a typical company describe the main cash
inflows and outflows, their likely magnitudes, and the resultant net cash flows.

 Describe the factors that influence the level of financial risk faced by a company.

 Explain the significance of financial risk to a company.

 Otline the relationship between business risk and financial risk during the life cycle of a
company and explain why the distinction between these two forms of risk is important.
  Analyse the ways in which a company’s financing needs change over its life cycle.

 Discuss the reasons why companies may consider adopting di!erent capital structures as
they progress from their initial start-up through to maturity.

 Why do companies pay dividends?

 What are the key factors that influence a company in deciding the level of dividends it will
pay?

 Outline a typical product life cycle (PLC) with reference to one specific industry.

 Compare the BCG (Boston Consulting Group) matrix with the business life cycle approach. How
do these two approaches assist in the development of appropriate financial strategies?

 Outline the life cycle of a typical business, and explain the movements and net e!ects of its cash
flows during each of the phases of its cycle.

 In what ways does risk impact on a business as it moves through each phase of its life cycle?
What strategies may a business adopt in response to such risks?

 Explain the inverse correlation between financial risk and business risk, and how a company may
use this to develop an appropriate financial strategy, during each stage of its life cycle.

 Explain the circumstances necessary for a company to be able to pay dividends to shareholders.